Worrisome Notice in a Bad News Week

The week of January 21^st held quite a bit of bad news, much of it related to the news of the Trump Administration with its self-harming shutdown of the federal government over Congressional unwillingness to pay for an ill-advised wall along the Mexico-U.S. border.  There was other bad news that went unnoticed as federal workers started lining up at food banks and airports began to fill with travelers stranded because unpaid federal security personnel could no longer pay for gas to get to work.  PG&E Corporation (PCG:  NYSE), the besieged electric utility in California, announced a decision not to renew its license for the Potter Valley hydroelectric power plant.

Helms Pumped Storage Plant

There is no doubt that PG&E is a player in the California electricity scene.  It is the largest investor owned utility in the state, producing over 60,000 gigawatt hours of electricity each year.  Large hydroelectric sources provide 15% of PG&E’s annual electricity output with small hydroelectric like Potter Valley adding another 2%.  Indeed, the company is the largest private owner of hydroelectric facilities in the entire country with 174 hydroelectric dams in its portfolio.  Its largest installation, the Helms Pumped Storage Plant at Sawmill Flat near Fresno shown to the right, uses water from two reservoirs that produce and store electric 1.2 gigawatts of electricity each year. 

Thus, PG&E decisions relative to hydroelectric power color hydropower in California and possibly the rest of the country.  This time I seems a dark shadow has been cast across what most think is a vibrant and successful renewable energy source.

Potter Valley Hydroelectric Dam

PG&E explained in a required filing with a federal regulator that the small 9.2 megawatt plant at Potter Valley is no longer economic and therefore it would not be in the best interest of rate payers to renew the license.  Many read between the lines and saw the capitulation of an electric utility on the brink of bankruptcy because of staggering losses resulting from wild fires in 2018.  With this large gaping wound, PG&E appears unable to cope with marginal power plants of such small size.  There is not enough investment capital for efficiency improvements and no patience for Potter Valley.

Annually, PG&E invests about $5.6 billion in maintenance capital.  At the end of September 2018, the company also had about $2.8 billion tied up in construction work in progress, a figure which is consistent with the pace of recent investment.  The sidelining of such an important investor in power generation will not go unnoticed.

Granted, hydroelectric power generation is not an area of intense innovation, but new investment in technologies is still important.  One recent improvement is the adoption of energy recovery technologies to capture the power in water pipelines and conduits.  Rickly Hydro based in Columbus, Ohio has developed turbines for small hydrosystems that, for example, can turn irrigation canals into a hydroelectric power station.  It can also be used at the outlets of large hydroelectric dams to capture lost energy and improve profits.  The concern is that with a large player like PG&E off the investment playing field, innovators like Rickly Hydro will find market penetration moving more slowly than expected.

3DSignals is using acoustic sound monitoring technology to its Predisound predictive maintenance system.  Moving parts, liquids or gases make unique sounds patterns.  If something goes wrong in plant works, movement changes and the sounds of the plant will change as well.  Maintenance teams can use the Predisound system to find and address problems quickly thereby reducing unplanned downtime.  Hydroelectric dams have hundreds of values, bearings shafts and more that can be ‘heard’ and have a functionality story to tell.  Enel Green Power in Italy is using the Predisound system for monitoring its hydroelectric generators.

A 3DSignals representative appeared on a panel at the Hydrovision International trade show in June 2018, to discuss research and development for new tools and technologies for hydroelectric power generation.  PG&E representatives were also at that event, but trade show contacts may be the last thing on the table at PG&E at this point.  Cost-saving technologies have merits, but bankruptcy actions leave little room for exploring possibilities.  In this case, consumers may be the ultimate losers.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.